Effects of Capital Structure and Board Structure on Corporate Performance of Selected Firms in Nigeria
Keywords:
Capital Structure, Board Size, Board Duality.
Abstract
This paper seeks to examine the effect of capital structure and board structure on firm performance in Nigeria using secondary data consisting of forty listed companies on the Nigerian Stock Exchange (NSE) within the period of 2008 to 2016. Data were merged and pooled for analysis, the unit root test; co -integration, granger causality test, and regression were done accordingly. The paper established that there exists a significant negative relationship between capital structures (DER), a significant relationship between board size and a negative but not significant relationship between board duality and performance (ROA & ROE) in Nigeria respectively.
References
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Alti, A, (2003).How persistent is the impact of market timing on capital structure?.Working paper.
Akhalumeh P., Ohiokha F., &Ohiokha G., (2011).Board Composition and Corporate Performance: An Analysis of Evidence from Nigeria.Research Journal of Finance and Accounting,2222-2847
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Atkeson, A., &Cole, H., (2005). A Dynamic Theory of Optimal Capital Structure and Executive
Compensation.Working paper, 11083.
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Baker, M., &Wurgler, J., (2002).Market timing and Capital Structure.Journal of Finance, 57.
Black, B.S.,(2001). Does Corporate Governance Matter: A crude test using Russian Data, University of Pennsylvania Law Review, 149, 2131-2150.
Beiner, S., &Dchmid, M.M., (2005).Agency Conflict, Corporate Governance, and Corporate Diversification –Evidence from Switzerland. Working Paper.
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Brennan, M.J., & Schwartz, E. S., (1984). Optimal Financial Policy and Firm Valuation.
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Dare, F. D., & Sola, O., (2010). Capital Structure and Corporate Performance in NigeriaPetroleum Industry: Panel Data Analysis, Journal of Mathematics and Statistics 6 (2),1549-3644, p.168-173.
Dittmar, A., (2004). Capital structure in Corporate Spinoffs. Journal of Business, 77.
Ezeoha, A. E., &Okafor, F. O., (2010). Local Corporate Ownership and Capital Structure Decisions in Nigeria: A Developing Country Perspective", Corporate Governance, 10 (3)249 – 260.
Fama, E., &French, K.R., (2002). Testing Trade-Off and Pecking Order Predictions About
Dividends and Debt. Review of Financial Studies, 15, 1-33.
Frick, B., &Bermig, A., (2009). Board Size, Board Composition, and Firm Performance: Empirical Evidence From Germany.Working paper.
Graham, J.R., &Harvey, C., (2001). The Theory and Practice of Corporate Finance: Evidence
from the Field. Journal of Financial Economics, 60, 187-243.
Gitman, L.J., (1985). Principles of Managerial Finance.Harper & Row: New York (Chapters 12 and 13).
Gompers, P.A., Ishii, J.L., &Metrick, (2003). A. Corporate Governance and Equity Prices.Working Paper.
Goldstein, R., Ju, N., & Leland, H., (2001). An EBIT-Based Model of Dynamic Capital Structure.Journal of Business, 74, 483-512.
Hakim B. O., (2012).The Effect of Board Structure and Process Disclosure on Corporate Performance in the Emerging African Markets. Managerial Auditing Journal, 27(2), 156 – 174.
Harris, M., and Raviv, A., (1991).The Theory of Capital Structure.Journal of Finance, 46, 297-
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Htay, S. N., (2012). Better Boards Towards Higher Profitability.World Review of Business Research, 2 (2) 149 - 163
James C., Van, H. &Wachowicz, J. M., (1985). Fundamentals of Financial Management, Prentice-Hall of India: New Delhi (Chapter 17).
Jensen, M.C., &Meckling, W. H., (1976).Theory of the Firm: Managerial Behavior, Agency
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Kajola, S. O., (2008).Corporate Governance and Firm Performance: The Case of Nigerian Listed Firms. European Journal of Economics, Finance and Administrative science,14.
Klapper, L. & Love, I., (2004).Corporate Governance, Investor Protection, and Performance in Emerging Markets.Working Paper.
Khan M.Y., & Jain, P.K., (2002). Cost Accounting and Financial Management, Tata McGraw Hill (Part-4).
Korajczyk, R., & Levy, A., (2003). Capital Structure Choice: Macroeconomic Conditions and Financial Constraints.Journal of Financial Economics, 68, 75–109.
Kostyuk, A. N., &Koverga, V., (2006).Board Size and Composition: The Main Tradeoffs. Corporate Board Journal, 2 (1), 48-54.
Kulkarni,.P.V., &Sathya, B.G. (1999). Financial Management, (ninth revised edition), Himalaya Publishing: Bombay.
Leary, M.T., & Roberts, M. R., (2005).Do Firms Rebalance their Capital Structures?Journal
of Finance, 60.
Luigi, P., &Sorin, V., (2009).A Review of the Capital Structure Theories.Working paper.
Mehmet, S. T., (2009). The Effect of Board Size on Firm Performance: Evidence from Turkey. The European Journal of Finance, 15 (4), 385- 404
Modigliani, F., &Miller, M.H., (1958).The Cost of Capital, Corporate Finance and the Theory
of Investment. American Economic Review,48, 261-297.
Modigliani, F., & Miller, M.H., (1963).Corporate Income Taxes and the Cost of Capital: A
Correction.American Economic Review, 53, 433-443.
Mohammad, F. S., Jaafer, M. A., (2012). The Relationship between Capital Structure and Profitability.International Journal of Business and Social Science, 3 (16) [Special Issue].
Murray Z.F., &Vidhan K.G., (2007).Trade-off and Pecking Order Theories of Debt.
Working paper, NBER 16180.
Myers, S.C., &Majluf, N.S., (1984). Corporate Financing and Investment Decisions when firms have Information that Investors do not have. Journal of Financial Economics, 13, 187-221.
Olayinka, M. U., (2010). The Impact of Board Structure on Corporate Performance in Nigeria.International Journal of Business and Management, 5 (10).
Omorogie, N. A., &Erah, D. O., (2010).Capital Structure and Corporate Performance in Nigeria: An Empirical Investigation. AAU JMS, 1(1).
Onaolapo, A. A.,&Kajola, S. O., (2010. Capital Structure and Firm Performance: Evidence from Nigeria. European Journal of Economics, Finance and Administrative Sciences,25, 1450-2275.
O’Sullivan, N., &Diacon, S. R., (2002).Board Composition and Performance in UK Life Insurance Companies.Centre for Risk and Insurance Studies, Nottingham University Business School.
Pandey, I.M., (2010). Financial Management.(10th Edition).Vikas Publishing House, PVT limited, New Delhi.
Pratheepkanth, P., (2011). Capital Structure and Financial Performance: Evidence From Selected Business Companies. Sri Lanka International Refereed Research Journal, II (2).
Prashat, G., Aman, S., & Dinesh, S., (2011).Capital Structure and Financial Performance; Evidence from India. Gautam Buddha University, Greater Noida, India.
Rouf, M.A., (2011). The Relationship between Corporate Governance and Value of the Firm in Developing Countries: Evidence from Bangladesh. The International Journal of Applied Economics and Finance, 5(3), 237-244.
San, T. O., &Heng, B., (2011).Capital Structure and Corporate Performance of Malaysian Construction Sector. International Journal of Humanities and Social Sciences, 1(2).
Shleifer, A, &Vishny, R.W., (1997).A Survey of Corporate Governance.Journal of Financial Economics, 52(2), 737- 783.
Stiglitz, J. E., (1969). A Re-Examination of the Modigliani-Miller Theorem. America Economic Review, 59, 784-793.
Adeyemi, S. B., &Oboh, C. S., (2011).Perceived relationship between Corporate Capital structure, International Journal of Business and Social Science, 2 (19) (special issue)
Adusei, M., (2011). Board structure and Bank performance in Ghana.Journal of money, Investment, and banking, Eurojournals publishing, Inc (Issue 19) HTTP:// www.eurojournals.com/JMIB.htm
Alti, A, (2003).How persistent is the impact of market timing on capital structure?.Working paper.
Akhalumeh P., Ohiokha F., &Ohiokha G., (2011).Board Composition and Corporate Performance: An Analysis of Evidence from Nigeria.Research Journal of Finance and Accounting,2222-2847
Akerlof, G.A. (1970). The market for ‘emons': Quality uncertainty and the market mechanism. Quarterly Journal of Economics, 84(3), 488-500.
Atkeson, A., &Cole, H., (2005). A Dynamic Theory of Optimal Capital Structure and Executive
Compensation.Working paper, 11083.
BabalolaY., (2012). The effects of optimal capital structure on firms' performances in Nigeria.Journal of Emerging Trends in Economics and Management Sciences(JETEMS), 3(2), 131-133.
Babatunde, Y., Akinwunmi O., Khadijah, I., Yusuf S., (2014) Capital Structure and Profitability of quoted firms: The Nigerian perspective (2000-2011). 10th International Academic Conference, Vienna, 978-80-87927-02-1, IISES
Baker, M., &Wurgler, J., (2002).Market timing and Capital Structure.Journal of Finance, 57.
Black, B.S.,(2001). Does Corporate Governance Matter: A crude test using Russian Data, University of Pennsylvania Law Review, 149, 2131-2150.
Beiner, S., &Dchmid, M.M., (2005).Agency Conflict, Corporate Governance, and Corporate Diversification –Evidence from Switzerland. Working Paper.
Berk, J., &Demarzo, P., (2011).Corporate finance.(2nd edition). Pearson Education Inc. Prentice hall, 75 Arlington street, Boston.
Brennan, M.J., & Schwartz, E. S., (1984). Optimal Financial Policy and Firm Valuation.
Journal of Finance, 39.
Dare, F. D., & Sola, O., (2010). Capital Structure and Corporate Performance in NigeriaPetroleum Industry: Panel Data Analysis, Journal of Mathematics and Statistics 6 (2),1549-3644, p.168-173.
Dittmar, A., (2004). Capital structure in Corporate Spinoffs. Journal of Business, 77.
Ezeoha, A. E., &Okafor, F. O., (2010). Local Corporate Ownership and Capital Structure Decisions in Nigeria: A Developing Country Perspective", Corporate Governance, 10 (3)249 – 260.
Fama, E., &French, K.R., (2002). Testing Trade-Off and Pecking Order Predictions About
Dividends and Debt. Review of Financial Studies, 15, 1-33.
Frick, B., &Bermig, A., (2009). Board Size, Board Composition, and Firm Performance: Empirical Evidence From Germany.Working paper.
Graham, J.R., &Harvey, C., (2001). The Theory and Practice of Corporate Finance: Evidence
from the Field. Journal of Financial Economics, 60, 187-243.
Gitman, L.J., (1985). Principles of Managerial Finance.Harper & Row: New York (Chapters 12 and 13).
Gompers, P.A., Ishii, J.L., &Metrick, (2003). A. Corporate Governance and Equity Prices.Working Paper.
Goldstein, R., Ju, N., & Leland, H., (2001). An EBIT-Based Model of Dynamic Capital Structure.Journal of Business, 74, 483-512.
Hakim B. O., (2012).The Effect of Board Structure and Process Disclosure on Corporate Performance in the Emerging African Markets. Managerial Auditing Journal, 27(2), 156 – 174.
Harris, M., and Raviv, A., (1991).The Theory of Capital Structure.Journal of Finance, 46, 297-
Heydar, M.S., Elham, G., Vahid T. K., and Mohsen, A. K., (2011).Capital Structure and Firm Performance; Evidence from Tehran Stock Exchange.EuroJournals Publishing, Inc, 14, 1450-2889
Htay, S. N., (2012). Better Boards Towards Higher Profitability.World Review of Business Research, 2 (2) 149 - 163
James C., Van, H. &Wachowicz, J. M., (1985). Fundamentals of Financial Management, Prentice-Hall of India: New Delhi (Chapter 17).
Jensen, M.C., &Meckling, W. H., (1976).Theory of the Firm: Managerial Behavior, Agency
Costs and Ownership Structure. Journal of Financial Economics,3, 305-360.
Kajola, S. O., (2008).Corporate Governance and Firm Performance: The Case of Nigerian Listed Firms. European Journal of Economics, Finance and Administrative science,14.
Klapper, L. & Love, I., (2004).Corporate Governance, Investor Protection, and Performance in Emerging Markets.Working Paper.
Khan M.Y., & Jain, P.K., (2002). Cost Accounting and Financial Management, Tata McGraw Hill (Part-4).
Korajczyk, R., & Levy, A., (2003). Capital Structure Choice: Macroeconomic Conditions and Financial Constraints.Journal of Financial Economics, 68, 75–109.
Kostyuk, A. N., &Koverga, V., (2006).Board Size and Composition: The Main Tradeoffs. Corporate Board Journal, 2 (1), 48-54.
Kulkarni,.P.V., &Sathya, B.G. (1999). Financial Management, (ninth revised edition), Himalaya Publishing: Bombay.
Leary, M.T., & Roberts, M. R., (2005).Do Firms Rebalance their Capital Structures?Journal
of Finance, 60.
Luigi, P., &Sorin, V., (2009).A Review of the Capital Structure Theories.Working paper.
Mehmet, S. T., (2009). The Effect of Board Size on Firm Performance: Evidence from Turkey. The European Journal of Finance, 15 (4), 385- 404
Modigliani, F., &Miller, M.H., (1958).The Cost of Capital, Corporate Finance and the Theory
of Investment. American Economic Review,48, 261-297.
Modigliani, F., & Miller, M.H., (1963).Corporate Income Taxes and the Cost of Capital: A
Correction.American Economic Review, 53, 433-443.
Mohammad, F. S., Jaafer, M. A., (2012). The Relationship between Capital Structure and Profitability.International Journal of Business and Social Science, 3 (16) [Special Issue].
Murray Z.F., &Vidhan K.G., (2007).Trade-off and Pecking Order Theories of Debt.
Working paper, NBER 16180.
Myers, S.C., &Majluf, N.S., (1984). Corporate Financing and Investment Decisions when firms have Information that Investors do not have. Journal of Financial Economics, 13, 187-221.
Olayinka, M. U., (2010). The Impact of Board Structure on Corporate Performance in Nigeria.International Journal of Business and Management, 5 (10).
Omorogie, N. A., &Erah, D. O., (2010).Capital Structure and Corporate Performance in Nigeria: An Empirical Investigation. AAU JMS, 1(1).
Onaolapo, A. A.,&Kajola, S. O., (2010. Capital Structure and Firm Performance: Evidence from Nigeria. European Journal of Economics, Finance and Administrative Sciences,25, 1450-2275.
O’Sullivan, N., &Diacon, S. R., (2002).Board Composition and Performance in UK Life Insurance Companies.Centre for Risk and Insurance Studies, Nottingham University Business School.
Pandey, I.M., (2010). Financial Management.(10th Edition).Vikas Publishing House, PVT limited, New Delhi.
Pratheepkanth, P., (2011). Capital Structure and Financial Performance: Evidence From Selected Business Companies. Sri Lanka International Refereed Research Journal, II (2).
Prashat, G., Aman, S., & Dinesh, S., (2011).Capital Structure and Financial Performance; Evidence from India. Gautam Buddha University, Greater Noida, India.
Rouf, M.A., (2011). The Relationship between Corporate Governance and Value of the Firm in Developing Countries: Evidence from Bangladesh. The International Journal of Applied Economics and Finance, 5(3), 237-244.
San, T. O., &Heng, B., (2011).Capital Structure and Corporate Performance of Malaysian Construction Sector. International Journal of Humanities and Social Sciences, 1(2).
Shleifer, A, &Vishny, R.W., (1997).A Survey of Corporate Governance.Journal of Financial Economics, 52(2), 737- 783.
Stiglitz, J. E., (1969). A Re-Examination of the Modigliani-Miller Theorem. America Economic Review, 59, 784-793.
Published
2017-11-01
How to Cite
Akani, H. W., & Ifechi, K.- N. J. (2017). Effects of Capital Structure and Board Structure on Corporate Performance of Selected Firms in Nigeria. Indian Journal of Finance and Banking, 1(2), 1-16. https://doi.org/10.46281/ijfb.v1i2.85
Section
Research Paper/Theoretical Paper/Review Paper/Short Communication Paper
Copyright (c) 2017 Henry Waleru Akani, Kenn-Ndubuisi Juliet Ifechi
This work is licensed under a Creative Commons Attribution 4.0 International License.
